“Trench Warfare” And “Civil War” Over Confiscatory Taxes In France

“We’re engaging in trench warfare,” proclaimed Alain Afflelou, head honcho and founder of an eyewear company with 1,200 stores in France and other countries. One of the wealthiest men in France. He was talking about the tax fiasco that split France in two. He was done with his country. He’s moving to London. One of France’s so-called fiscal exiles.

He’d set up his international headquarters in Switzerland, rather than France, 15 years ago to minimize his company’s tax burden, but now he’d personally bail out.

The clamor had started in September when it leaked out that Bernard Arnault, richest man in France and CEO of luxury-goods empires LVMH and Groupe Arnault, was applying for Belgian citizenship. In response, Economy Minister Pierre Moscovici threatened to renegotiate the tax treaties with Belgium, Luxembourg, and Switzerland. A few days ago, reports surfaced in the Belgian media that mailbox companies—a dozen at the Brussels apartment of a Groupe Arnault director alone—have allowed Arnault’s empire to escape several hundred million euros in taxes.

Belgium got cold feet. On Saturday before Christmas when nothing was supposed to happen, Anti-Fraud Secretary of State John Crombez requested that Finance Minister Steven Vanackere transfer Arnault’s tax file to the tax authorities in France, an idea the minister did not immediately reject.

Now Arnault got cold feet. LVMH and Groupe Arnault defended themselves the best they could, claiming that these mailbox companies had “economically perfectly real activities in Belgium where some of them have been implanted for decades.” Indeed, they were “surprised” by the allegations.

But no one stirred up the heat in France like iconic actor Gérard Depardieu who, turns out, set up his domicile in Néchin, a village just across the border in Belgium—as the mayor confirmed, “to escape French taxation.”

Final straw for President Hollande. Now he too threatened to renegotiate the tax treaty “to deal with cases of those who settle in some Belgian village.” He lashed out against the “fiscal dumping” that some countries in the EU were practicing. Prime Minister Jean-Marc Ayrault chimed in; Depardieu’s exile was “pretty pathetic.”

Depardieu was not amused. In an open letter, he renounced his French citizenship, broadsided the Prime Minister and the President, and shocked the nation: all taxes combined ate up 85% of his income.

Not true, explained eyewear mega-retailer Alain Afflelou during the interview. “Those who are in the 75% income-tax bracket may go well beyond 90% taxation.” He listed layers of additional taxes, small percentages here and there that added up. “We therefore have in France a confiscatory taxation that can deprive us of all of our income from work.”

Then he uttered “trench warfare” to describe the battle between the two sides. “We have to stop saying that CEOs are thieves, thugs, and dishonest people. We need people who work, who make a living, who create jobs.”

He was echoing Laurence Parisot, President of the MEDEF, France’s largest employer union. “Doubt is taking over the life force of the country,” she complained; Hollande in his confrontation with Depardieu was doing “the opposite of what he promised,” namely to pacify the country and reduce antagonism. “We are in the process of creating a climate of civil war, similar to 1789,” she said.

Hollande jumped on the airwaves and tried to impose some sort of armistice. The 75% tax bracket would be temporary, he said. And concerning Depardieu: “No citizen must be stigmatized by the President.” But by using that word, he stigmatized him—and all the others who’re trying to escape.

There are a lot of them. Le Figaro cited tax lawyers who spoke of “unprecedented waves” of fiscal exiles who were leaving France, some of them in the middle of the school year, which “had never happened before.” Moving companies confirmed it. Outflows “remain two to three times higher than normal,” said the boss of one of them. “Our trucks leave constantly in direction of Switzerland, Belgium, and Great Britain.”

And the profile of the fiscal exiles has changed. They’re no longer rich heirs or fifty-year-olds who’d sold their companies, but “young childless entrepreneurs” who wanted “to settle in another country to start up their companies,” according to one of the tax lawyers. And top executives between 40 and 55 were moving with their kids to Brussels or London “to escape” the new taxes.

Entire skill sets were leaving. International companies were “progressively relocating part of their teams abroad,” said le Figaro’s source within the MEDEF. Among them more and more secondary functions, such as human resources or finance—”much less visible and symbolic than relocating headquarters.”

With heavy consequences for the economy. When talent, entrepreneurial energy, capital, and profits leave the country all at the same time, it’s hard to imagine how economic growth and job creation could miraculously reappear.

Also on Friday before Christmas when nobody was supposed to pay attention, the European Commission issued a mind-boggling report on bank bailouts in the EU: Member States had committed over $2 trillion at the expense of current and future taxpayers to bail out stockholders, bondholders, and speculators. Read.... The EU Bailout Oligarchy Issues A Report About Itself.